/Introduction
The Market Breadth Strategy (MBS) is a versatile strategy for trading the US stock market. MBS is suitable for traders with low, medium and high risk tolerance who prefer trading equities as an asset class on the 1 day timeframe. It combines mean reversion with trend following to keep you participating in the stock market for as long as is profitable.
/Signals
The strategy is long only. Four different signals are generated to ensure all opportunities the market presents are seized for profit. The first category of signals are triggered after a prolonged period of falling prices; usually during a bear market or severe correction, open your largest positions on this signal. The second category of signals are triggered at the end of the bear market, early in the recovery. They ensure you do not miss out on an early entry if you get stopped out of your initial positions, size them equal to the first category signal positions. The third category of signals are triggered late in the recovery from a bear market, severe correction or deep pullback. Open your smallest positions on this signal. The fourth category of signals are triggered at all times when the market experiences a significant pullback or time correction, these positions should be medium sized.
For optimum performance, whenever signals are triggered, traders are advised to open at least, a new long position. Buying the index is recommended for traders with low risk tolerance, buying sector, industry or thematic ETFs (after sufficient analysis) is recommended for traders with medium risk tolerance, while buying stocks (after sufficient analysis) is recommended for traders who want to take on higher risk for higher returns. Such traders may also combine positions in indices, groups and individual stocks for better performance.
/Interpretation
MBS will display an upward blue arrow signifying a buy signal after the candle closes. A label below the arrow will describe which signal was triggered and a number depicting the number of positions (they can be deactivated in the style settings). MBS will also display a downwards pink arrow above the candle, after a specified decline from the high, again when the candle closes. All open positions will be closed on this signal, it is the risk management feature of the strategy.
/Construction
The strategy is built using market breadth data from the US Exchanges where stocks are listed, it is not a mash-up of different indicators. A combination of the following data is used:
(i) the number of advancing and declining issues
(ii) the number of issues reaching new highs
(iii) the closing prices of issues relative to key moving averages
This data is analysed and used to generate the four categories of signals described previously, they are named;
(i) Bottom Signal - for buying at the market's potential bottom
(ii) Follow-Up Signal - for ensuring you do not miss the bottom
(iii)Follow-Through Signal - for buying strength after a downtrend
(iv) Buy-The-Dip Signal - for buying throwbacks in uptrends and pullbacks in downtrends
/Settings
This strategy works best with the default settings. Although the input parameters can be changed to suit your needs, it is not advisable to do so as it may affect the strategy's performance.
(i) The market regime filter checks to see if the market is in a regime of rising prices (bull market) or falling prices (bear market), long signals are avoided in bear market conditions.
(ii) The risk size is equivalent to a stop loss. It triggers an exit when price declines by a certain amount.
(iii) 'Downside' measures the participation of issues to the downside during a decline while 'Upside' measures the participation of issues to the upside after the decline; this is called 'follow through'.
(iv) The bottom interval determines the frequency of bottom signals issued in days.
(v) Dip size quantifies the dip to determine if it is large enough for a buy signal, the lower the number, the larger the dip.
(vi) Following interval sets the duration for following up on the bottom.
(vii) Bottoming interval resets the bottom for the next follow-up
/Strategy Results
The backtest results are based on a starting capital of $13,700 (convenient amount for retail traders) with $1000 position size (7% of equity and enough for two shares of SPY) and pyramiding of 10 consecutive positions. Commissions of 0.03% and slippage of 2 ticks are used to ensure the results are representative of real world trading conditions. The backtest results are available to view at the bottom of this page.
Note that past results are not indicative of future results. The strategy is backtested in ideal conditions, it has no predictive abilities and results from live trading may not achieve the 2.235 profit factor shown here as each trader may introduce subjectivity or interfere with its performance or market conditions might change significantly. Since the strategy was designed for the US stock market, it has been backtested on the SPY (representative of the US stock market) ETF (for consistency in price across brokers).
/Tickers
This strategy should be used preferably with the SPY ticker which is the ETF for the S&P500. Alternatively, it could be used with VOO and several other S&P500 ETFs or a CFD ticker such as SPX500USD and several others which are based on the futures product. The strategy may not be suitable for futures tickers like ES according to TradingView.
/Access
The MBS is an Invite-Only script hence, traders interested in this strategy should contact me privately to request access.
The Market Breadth Strategy (MBS) is a versatile strategy for trading the US stock market. MBS is suitable for traders with low, medium and high risk tolerance who prefer trading equities as an asset class on the 1 day timeframe. It combines mean reversion with trend following to keep you participating in the stock market for as long as is profitable.
/Signals
The strategy is long only. Four different signals are generated to ensure all opportunities the market presents are seized for profit. The first category of signals are triggered after a prolonged period of falling prices; usually during a bear market or severe correction, open your largest positions on this signal. The second category of signals are triggered at the end of the bear market, early in the recovery. They ensure you do not miss out on an early entry if you get stopped out of your initial positions, size them equal to the first category signal positions. The third category of signals are triggered late in the recovery from a bear market, severe correction or deep pullback. Open your smallest positions on this signal. The fourth category of signals are triggered at all times when the market experiences a significant pullback or time correction, these positions should be medium sized.
For optimum performance, whenever signals are triggered, traders are advised to open at least, a new long position. Buying the index is recommended for traders with low risk tolerance, buying sector, industry or thematic ETFs (after sufficient analysis) is recommended for traders with medium risk tolerance, while buying stocks (after sufficient analysis) is recommended for traders who want to take on higher risk for higher returns. Such traders may also combine positions in indices, groups and individual stocks for better performance.
/Interpretation
MBS will display an upward blue arrow signifying a buy signal after the candle closes. A label below the arrow will describe which signal was triggered and a number depicting the number of positions (they can be deactivated in the style settings). MBS will also display a downwards pink arrow above the candle, after a specified decline from the high, again when the candle closes. All open positions will be closed on this signal, it is the risk management feature of the strategy.
/Construction
The strategy is built using market breadth data from the US Exchanges where stocks are listed, it is not a mash-up of different indicators. A combination of the following data is used:
(i) the number of advancing and declining issues
(ii) the number of issues reaching new highs
(iii) the closing prices of issues relative to key moving averages
This data is analysed and used to generate the four categories of signals described previously, they are named;
(i) Bottom Signal - for buying at the market's potential bottom
(ii) Follow-Up Signal - for ensuring you do not miss the bottom
(iii)Follow-Through Signal - for buying strength after a downtrend
(iv) Buy-The-Dip Signal - for buying throwbacks in uptrends and pullbacks in downtrends
/Settings
This strategy works best with the default settings. Although the input parameters can be changed to suit your needs, it is not advisable to do so as it may affect the strategy's performance.
(i) The market regime filter checks to see if the market is in a regime of rising prices (bull market) or falling prices (bear market), long signals are avoided in bear market conditions.
(ii) The risk size is equivalent to a stop loss. It triggers an exit when price declines by a certain amount.
(iii) 'Downside' measures the participation of issues to the downside during a decline while 'Upside' measures the participation of issues to the upside after the decline; this is called 'follow through'.
(iv) The bottom interval determines the frequency of bottom signals issued in days.
(v) Dip size quantifies the dip to determine if it is large enough for a buy signal, the lower the number, the larger the dip.
(vi) Following interval sets the duration for following up on the bottom.
(vii) Bottoming interval resets the bottom for the next follow-up
/Strategy Results
The backtest results are based on a starting capital of $13,700 (convenient amount for retail traders) with $1000 position size (7% of equity and enough for two shares of SPY) and pyramiding of 10 consecutive positions. Commissions of 0.03% and slippage of 2 ticks are used to ensure the results are representative of real world trading conditions. The backtest results are available to view at the bottom of this page.
Note that past results are not indicative of future results. The strategy is backtested in ideal conditions, it has no predictive abilities and results from live trading may not achieve the 2.235 profit factor shown here as each trader may introduce subjectivity or interfere with its performance or market conditions might change significantly. Since the strategy was designed for the US stock market, it has been backtested on the SPY (representative of the US stock market) ETF (for consistency in price across brokers).
/Tickers
This strategy should be used preferably with the SPY ticker which is the ETF for the S&P500. Alternatively, it could be used with VOO and several other S&P500 ETFs or a CFD ticker such as SPX500USD and several others which are based on the futures product. The strategy may not be suitable for futures tickers like ES according to TradingView.
/Access
The MBS is an Invite-Only script hence, traders interested in this strategy should contact me privately to request access.
Notas de Lançamento:
Added a new entry signal called "Market Dip"
Notas de Lançamento:
Added three additional signals for entering on strength.
Notas de Lançamento:
Changed the % of equity used in the backtest to 5, for a more realistic backtest performance report.
Notas de Lançamento:
Added a new entry signal called "Advance-Decline"
Notas de Lançamento:
Removed excess signals to prevent overtrading from pyramiding.